Arbitrage in prediction markets has matured from a niche edge into a systematic strategy. As platforms like Polymarket, Kalshi, and traditional sportsbooks all price the same events, sharp traders now hunt for mispricings across venues. Understanding what is a prediction market and how prediction markets work is the foundation, but capturing profit requires mastering the prediction market mechanics of fees, liquidity, and settlement rules. This guide walks you through the real math, the tools that matter, and the risks that can wipe out a seemingly safe trade.
Where arbitrage exists across Polymarket, Kalshi, and sportsbooks
Prediction market basics tell us that each venue prices binary contracts based on its own order book and user base. Polymarket runs on blockchain with global liquidity, Kalshi operates as a CFTC-regulated U.S. exchange, and sportsbooks set odds for the same political or sports outcomes. When Polymarket shows a candidate at 62 cents and Kalshi at 58 cents, you can buy low on Kalshi and sell high on Polymarket. The prediction market definition guarantees both contracts settle to the same binary outcome, so the spread is pure edge if you can hold to expiry.
Cross-market inefficiencies spike around breaking news, when one platform updates faster than another. Sportsbooks often lag decentralized prediction markets by minutes during live events, creating fleeting windows. Regulatory differences also matter: Kalshi cannot list certain entertainment markets that Polymarket covers, so comparable events may price differently due to liquidity silos.
The fee, bridge, and slippage equation
Gross arbitrage is easy to spot. Net arbitrage after costs is harder. Polymarket charges no explicit trading fee but imposes a 0.2% withdrawal fee when you bridge USDC off-chain. Kalshi takes a maker-taker spread, typically 1 to 2 cents per contract. Sportsbooks embed their margin into the odds. You must model each leg: if you buy 1,000 contracts at 58 cents on Kalshi and sell at 62 cents on Polymarket, your gross is $40, but fees and slippage can eat $20 or more on thin books.
Cross-venue arb math after costs
Start with the formula: net profit equals (sell price minus buy price minus fees) times position size. Factor in gas fees for on-chain settlement, bridge time, and opportunity cost of locked capital. A 4-cent spread sounds wide, but if Kalshi slips you 1 cent on entry and Polymarket slips 1.5 cents on exit, your realized edge drops to 1.5 cents before withdrawal fees. Always simulate the full round trip in a spreadsheet before committing capital.